The March contract for benchmark US crude closed above $59/bbl on the New York market for the first time in 2007 on Feb. 2 on the strength of forecasts that a severe cold front would hike heating demand 36% above normal in the Northeastern US, the largest heating oil market.
Energy markets ended January with a bang as the same crude contract closed at $58.14/bbl Jan. 31. However, it retreated to $57.30/bbl Feb. 1, ending a 2-day rally, because of a smaller-than-expected withdrawal of natural gas from US underground storage. The Energy Information Administration reported the withdrawal of 186 bcf of gas in the week ended Jan. 26. That was below the consensus of Wall Street analysts and compared with withdrawals of 179 bcf the previous week and 88 bcf in the same period last year. Gas storage totaled 2.6 tcf, 152 bcf more than a year ago and 454 bcf above the 5-year average.
The March crude contract closed at $59.02/bbl after trading at $57.05-59.25/bbl Feb. 2, as colder weather and increased demand reminded traders that members of the Organization of Petroleum Exporting Countries had agreed to cut production by 500,000 b/d to an official ceiling of 25.8 million b/d effective Feb. 1. While compliance with OPEC's October pledge to cut production by 1.2 million b/d in December remains spotty, Saudi Arabia's commitment to reduce its output by 158,000 b/d this month helped boost crude prices.
The crude contract "rallied back to finish the week $3.60/bbl higher for the second week in a row," said Olivier Jakob at Petromatrix GMBH, Zug, Switzerland. "We are now back to the fourth-quarter 2006 value range, and while we remain positive on the medium term direction, we will take a more conservative and neutral approach short term until we get more data confirmation that could justify the continuation of the rally."
Other market factors
At Banc of America Securities LLC, New York, analyst Robert S. Morris reported, "Strong US economic data provided a further boost to oil prices with the expectation that a faster growing economy would ultimately spur greater crude oil and gasoline demand. Finally, tensions between Iran and the West continued to escalate as Tehran announced that it would hook up 3,000 centrifuges this month to begin large-scale uranium enrichment despite threats from the UN Security Council that it would impose further sanctions later this month if Iran did not roll back its enrichment program."
Meanwhile, oil unions in Nigeria threatened to strike because of escalating violence in that country's most prolific producing area. "Leaders of Nigeria's top oil unions said a withdrawal of staff from the Niger Delta remains a possibility," said analysts in the Houston office of Raymond James & Associates Inc. on Feb. 5, the original target date for the strike.
"Violence in the Niger Delta has increased over the last 12 months with over 200 people being kidnapped. Recently, an attack by local militants forced Royal Dutch Shell PLC to halt 477,000 b/d, almost a quarter of the nation's production," the analysts said. A total withdrawal of workers would force crude production from the delta region, they said, "to come to a screeching halt."
In other news, Venezuelan President Hugo Chavez threatened to seize control of at least 60% of four heavy-crude joint ventures in the eastern Orinoco Belt by May 1. Those projects produce 600,000 b/d.
The March natural gas contract lost 5.4¢ to $7.48/MMbtu Feb. 2 on NYMEX. On the US spot market, however, natural gas at Henry Hub, La., jumped 32.5¢ to $8.16 MMbtu. "Composite spot natural gas prices surged more than 11% last week with the extended outlook for continued colder-than-normal temperatures," said Morris of Banc of America Securities. "In fact, a roughly 30% surge in this natural gas price index since mid-January can be largely attributed to a sharp reversal in the weather outlook."
EIA said distillate fuel inventories fell 2.6 million bbl to 140 million bbl the week ended Jan. 26, with a drop in heating oil offsetting a rise in diesel. That was the first decline in distillate inventory in 7 weeks. US crude inventories increased for a third week, up 2.5 million bbl to 324.9 million bbl. Gasoline stocks jumped by 3.8 million bbl to 224.6 million bbl in the same period. "The gasoline stock build was higher than expected due to high imports, but the gasoline demand was very robust while the cold weather started to draw down heating oil stocks in the Northeast," Jakob of Petromatrix said.
(Online Feb. 5, 2007; author's e-mail: email@example.com)